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Investing via rearview mirror

While most of us invest for the future, we typically do it looking backward at the past performance of the stock market. We know where it has been, but that isn't a predictor of where it will be — up or down — five years from now, much less next week.

Although the current recession started in 2007, the stock market — for federal and postal workers and retirees — hit bottom the second week of March 2009. On March 9, the Treasury securities G Fund was worth $12.80 per share. The F Fund (bonds) was $12.43. The C Fund (S&P 500 stocks) had dropped to $7.87 in value while the S Fund (small-cap stocks) was at $9.06 and the international stock index I Fund was selling for $10.29.

As of Jan. 7, the G Fund was $14.03, the F Fund was $15.98, the C Fund was $18.48, the S Fund was up to $25.15 and the I Fund was at $21.13. Those are total percentage changes, ranging from 9.58 percent for the super-safe G Fund, to almost 135 percent for the C Fund; 177 percent for the S Fund and 105 percent for the I Fund.

So if you kept buying the beaten down C, S and I Funds during the recession period, your portfolio should look pretty darn good today. Because you were buying low. The shaky stock market, it turns out, was on sale. Down was good, if you are a long-term investor.

Financial planner Arthur Stein, our guest yesterday on our Your Turn radio program, says a better measure of performance — like the TSP funds — is to look at their average annual rate of return over a 10-year period. While the final numbers aren't in yet, he estimates the average return of the C Fund will be about 7 percent; 11 for for the S Fund; 8 percent for the I Fund; 5 percent for the F Fund; and 4 percent for the G Fund.

But during times of recession or a jittery stock market, many people follow the sleep-at-night-rule! That is, if you can't sleep or are having nightmares about your investment choices you probably shouldn't be in the stock market. Investing more heavily in the G and F Funds, while less exciting and usually less rewarding, is a more tranquil choice for very nervous investors.

For people who know they can't time the market's highs and lows, the TSP offers so-called Lifecycle, or target-date, funds. The target date is when you think you will start withdrawing money from your account (or when you hit age 70.5 and must start making minimal withdrawals).

Currently there are five target-date funds: Current income, 2020, 2030, 2040 and 2050. The 2050 fund has a larger percentage of high-risk, high-reward shares of the C, S and I Funds than the 2040 fund. It, in turn, has more such stocks than the 2030 or 2020 funds which are regularly rebalanced to keep what is considered the proper mix of stocks, bonds and Treasuries. Since they are self-adjusting, investors don't need to worry when the market drops (meaning it is time to buy) or to sell when their stocks are doing well.

Instead of bailing when the market was or is down, people in target funds are actually buying shares (because they are presumably on sale) to maintain their portfolio balance. The same is true when shares rise in value. The target fund will sell some of them to get the best price (hopefully) and maintain the balance between stocks, bonds and treasuries.

So if you bailed out of stocks in your TSP account in 2007 through 2009, was it wise? What would have happened had you stayed in? Or continued to buy more shares at "sale" prices? Obviously you would have more money in your TSP portfolio today if you had stayed with the stocks and continued to buy them. But would it have done a number on your head?

The name of the recently unearthed prehistoric lizard, Obamadon gracillis, refers to the 44th president's smiling visage. "The lizard has these very tall, straight teeth, and Obama has these tall, straight incisors and a great smile," paleontologist Nick Longrich said.